Most manufacturing and distribution companies have untapped sources of net profit — often as much as 10 percent of sales (that is, $4.5 million of added net profit for a company doing $45 million in annual sales). What often prevents them from unlocking this potential is hesitation to challenge the status quo.
A Midwest manufacturer with sales of $45 million unlocked 19 different changes that generated $6 million in profit in the first year. How were they able to identify these opportunities? They employed a profit-improvement program using a company's best tool — its employees.
Seeing things differently means shaking things up — a process that makes most people uncomfortable. Like anything that causes change, there are considerations to keep in mind before embarking on a profit-improvement program.
Commit to change. An organization changes from the top down. If the top executives aren't on board, nothing will happen.
Use an outside facilitator. This individual offers two advantages: an outsider's job is not at stake in the event of change, and he or she has no sacred cows.
Communicate. This can't be emphasized enough. Keeping employees informed discourages rumors that can be damaging. Make the process open to everyone so they can feel like partners in efforts to increase prosperity.
The first step is to create a task force. This group of eight to 10 employees taken from areas other than senior management can have valuable insights.
Make it clear the task force, not the facilitator, gets all the credit for the profit improvements.
And, there are some rules:
* The task force will meet once a week for no more than an hour.
* Each meeting will have an agenda.
* Minutes will be taken by the facilitator. Each member is committed to be at the meetings — either in person or by phone.
* Materials distributed to the task force will be distributed to top management — for information purposes only.
* Uncooperative members will be removed.
* Finally, anonymity — no one will know an idea's author.
The second step is to commit to measurable goals. At the first meeting, the task force must commit to two things: a dollar amount of net profit improvement, and a date within 90 day of the initial meeting to present a plan to management.
Next, each member must give the facilitator 10 suggestions for profit improvement by week's end. Each must be specific and the profit must be measurable. No idea is too far-fetched. Practicality will be determined later.
All ideas are not created equal. The facilitator and task force will rank ideas, according to difficulty. Once the ideas have been ranked, focus on the ideas that are easy to implement and that have easily quantified savings.
Lederer and Siegel are principals with Chicago-based Horizon Advisors LLC managment consultants.